United States: All Native Advertising Is Not Equal: Why That Matters Under The First Amendment And Why It Should Matter To The FTC – Part V

In this five part series, originally published in the Summer 2014 edition of the Media Law Resource Center Bulletin,¹ we take an in-depth look at the native advertising phenomenon and the legal issues surrounding the practice. After canvassing the many faces of native advertising and the applicable law, the series ultimately examines the pervasive assumption that all native advertising is, and should be regulated as, "commercial speech." This assumption presumes that all native advertising is equal under the eyes of the law, and we come to the conclusion that it probably isn't. Native advertising that is closer to pure content than pure commercial speech may deserve greater or even full First Amendment protection, which would carry significant implications for government regulation².

Part 1: Introduction to Native Advertising

Part 2: Early Native Advertising and the Current FTC Regulatory Landscape

Part 3: Evolution of the Commercial Speech Doctrine

Part 4: Distinguishing Commercial versus Non-Commercial Speech

Part 5 applies the commercial speech doctrine to native advertising and asks whether certain forms of native may be protected by the First Amendment.

—PART V—

Not all Native Advertising May Be Commercial Speech under the First Amendment

If there is one thing clear from the case law, it is that the commercial speech analysis under the First Amendment is a fact intensive one that does not clearly lend itself to bright lines, especially when dealing with mixed commercial and noncommercial speech. Native advertising also does not lend itself to a single categorization as it can take a number of forms. See Part I.A., supra. As discussed below, the appropriate level of First Amendment protection for native advertising as commercial or noncommercial speech should turn on the nature of the communication as opposed to a catch-all net.³

Native Advertising Spectrum

The native advertising spectrum ranges from speech on the one end that is commercial in the classic sense of the word and subject to intermediate judicial scrutiny, to native editorial content on the other end which may not. On the clear commercial speech end of the native ad spectrum, there is what we will call pure "native advertisements." This type of native looks very similar to traditional print or online advertising. For instance, "In-Feed Units" (i.e., "Sponsored By" posts on Facebook) and "Promoted Listings" (i.e., Etsy webpage ads) contain the familiar elements of a print or banner ad: (1) a description of a product, (2) the product manufacturer's name, and (3) some solicitation to purchase the product or some promotion of the product or brand. The native case for In Feed and Promoted Listings is almost purely contextual as they differ from traditional ads primarily because of the context of the consumer's natural experience with the website or app, either perusing through a news feed or browsing search results. "Paid Search Ads" and "Recommendation Widget ads" are similarly close to classic commercial speech as they are designed to fit seamlessly into search engine results or webpages and to link directly to a promoted product or brand.

Further along the native ad spectrum are "In-Ad" and "Custom/Can't be Contained." These native ad practices are distinguishable from the foregoing because they involve some form of editorial content. The content may be created by the brand, an agency, the publisher, or a combination of two or more. This practice—which we will term "native content"—is more editorial content than anything else. Native content includes articles, videos, and other entertainment created by brands to engage with consumers, that communicates information, expresses opinion, or discusses matters of public concern, and that brands pay to place on websites and in applications alongside other similar editorial content.

Some native content may be less editorial than others. For instance, last summer Under Armour paid Will Ferrell and the crew at Funny or Die to produce a short video, "Tom's Best Friend", which featured Under Armour products worn by Patriot's QB Tom Brady and in the background of the scene, but was more than anything a comedy sketch.⁴ However, it was a comedy sketch that prominently displayed the sponsor's brand of clothing.

On the other hand, other native content may not even mention the brand, product or service. For instance, Virgin Mobile recently ran "native content" without any reference to the company or its services when creating the Buzzfeed post "13 Perfectly Cast Disney Princesses."⁵ The article featured side-by-side headshots of Disney princesses with actors, who apparently in Virgin Mobile's opinion, would be perfectly cast to play them. There were no Virgin Mobile products featured, it did not discuss the Virgin Mobile brand, and really, the casting of live action Disney princesses had nothing at all to do with Virgin Mobile's business. This native, as with many other examples of native content, was produced almost purely for entertainment value by the brand—a vehicle to engage consumers and foster a positive association.

Native Content may not be commercial speech

With this spectrum in mind, under the most widely adopted definition of commercial speech, "native advertising" as we've defined it above, likely qualifies as commercial speech. In determining whether speech is commercial, courts generally consider three factors: (1) whether the communication is an advertisement; (2) whether the communication refers to a specific product or service; (3) and whether the speaker has an economic motivation for the speech.⁶ If all three elements are met, then there is a strong likelihood that the speech is commercial.⁷

"Native advertisements" – as defined above – fall squarely within the traditional definition of commercial speech. These native ads are typically in fact ads, always refer to a product or service, and have no other motivation but an economic one. They are very similar to the historical reading notices, restaurant ads, advertorials, and infomercials the FTC has regulated since its inception.⁸ These types of native advertisements are not only more than likely commercial speech—they are for all intents and purposes already being actively regulated by the FTC.⁹

The tougher call is when you move down the native spectrum and approach speech that resembles more and more pure editorial content, or commercial content so inextricably intertwined with the noncommercial components of the speech that the speech can no longer be considered commercial. Virginia Pharmacy and Bolger teach us that native content cannot be commercial speech simply because it is a paid advertisement, or because money was paid to place the content on a website.¹⁰ As the Court reasoned in these cases and many others, a hard-and-fast rule like this would mean political advertisements, traditionally protected First Amendment speech, would be "commercial speech."¹¹ Additionally, speech carried in a form sold for profit or that even asks readers to purchase something is not necessarily commercial.¹²

Indeed, applying the three pronged commercial speech test set forth by Bolger and adopted by the majority of courts, much native content at first blush would not be considered commercial speech. Take the Buzzfeed 13 Perfectly Cast Disney Princesses Virgin Mobile example discussed above. This content is not an advertisement, nor does it mention a specific product. Although it carries the "Featured Partner" disclaimer and Virgin Mobile's name, it does not make a general solicitation for purchasing Virgin Mobile's products or services. The only element that may weigh even arguably in favor of a finding of commercial speech is the general economic motivation of Virgin Mobile. But the Supreme Court and many others have held that profit motive is not enough.¹³ Moreover, the motivation behind Virgin Mobile's Buzzfeed example may be less about the bottom line and more about building customer goodwill.¹⁴

"Native content" as defined above is not an advertisement, does not refer to a specific product or service, and may not be solely motivated by economic factors. The strong presumption of commercial speech when speech meets all three Bolger factors is typically not present for native content. Native content is therefore less like traditional commercial speech, which does nothing more than propose a transaction, and more akin to the inextricably intertwined commercial/noncommercial line of cases discussed in Part II.C supra.

As summarized above, combined commercial and noncommercial speech that "communicates information, expresses opinion, recites grievances, protests claimed abuses, or solicits financial support on behalf of a movement whose existence and objectives are matters of public concern, [] is not purely commercial" and is afforded full First Amendment protection.¹⁵ In City of New York v. American Publishers, for instance, the court emphasized less the economic motivation of the school and its subsidiary magazine publisher, and more the content itself, specifically the stories, articles and reviews that importantly did not advertise or even mention the school's courses.¹⁶ The fact that the magazine also contained advertisements for the school's courses did not overcome the magazine's informational value to consumers on the whole and thus could not be considered commercial speech for First Amendment purposes.¹⁷

More recently, the Fourth Circuit held in CPC International v. Skippy¹⁸, that the defendant's cartoon website served "a primarily informational purpose, not a commercial one" and was thus distinguishable from other "inextricably intertwined" cases where the court found the speech to be commercial because they "involved commercial speech supplemented by comments related to the marketed products."¹⁹ Similarly, in the Hoffman case, the court found that the actor's image was not used in a traditional ad with the purpose of promoting the magazine (or any other product), and the expressive elements could not be separated from any commercial aspect of the image.²⁰

1. Native content may therefore fall in the camp of these "inextricably intertwined" noncommercial cases if the content:
2. Does not feature a product or brand;
3. Does not solicit a purchase;
4. Is motivated by something other than profit;
5. Communicates information, expresses opinion, or discusses matters of public concern; and
6. Contains expressive elements of photography, humor, visual and/or verbal editorial content.

Like the "Tootsie" photograph in the Hoffman case, the commercial aspects of native content are "inextricably intertwined with expressive elements and so they cannot be separated out from the fully protected whole."²¹ As the Ninth Circuit explained in prescient terms equally applicable to native content, "there are commonsense differences between speech that does not more than propose a commercial transaction and other varieties...and common sense tells us that this is not a simple advertisement."²²

To recap, here is a table summarizing the native spectrum and sliding scale of First Amendment protection:

FTC Should Limit any Native Advertising Guidelines or Regulations to "Native Ads" not "Native Content"

If certain variations of native content may in fact not be commercial speech, and may be fully protected speech, then any government regulation of native content would be subject to strict judicial scrutiny. Strict scrutiny requires the government to demonstrate that the regulation at issue is narrowly tailored toward a compelling government interest and be no less intrusive than necessary to promote that interest.²³

FTC regulations—like other regulations of commercial speech—are typically analyzed under an intermediate scrutiny standard.²⁴ Before the FTC adopts any regulations addressing native content—as opposed to the native advertising as defined above—the FTC should take pause to ensure that any prospective regulation, or modification of an existing one, meets the heightened standard of review that it is unaccustomed to being held to.²⁵

Moreover, industry practices suggest that regulatory concerns with deception associated with native content can and should be better addressed by market forces in the first instance.²⁶ As almost all the industry panelists at the FTC workshop stated, trust and transparency are critical considerations with branded content.²⁷ Indeed, native content that flirts with deception will get punished by the market, e.g., the Atlantic after it ran a sponsored story on Scientology's "Milestone Year" with minimal disclosure that it was paid content.²⁸ The purpose of brand content is to develop customer experiences and connections which necessarily requires the brand to disclose its association with the content.²⁹

The Supreme Court has also cautioned against broadly regulating otherwise lawful mixed commercial/noncommercial speech without any evidence that it misleading.³⁰ In these circumstances, the benefit of restricting the free flow of speech is outweighed by the potential chilling effect.³¹ The Supreme Court has traditionally frowned upon regulations of truthful, non-misleading speech based on the "paternalistic assumption" that the public will use information unwisely.³² Accordingly, the Court has required that the government's interest in the regulation of the particular commercial speech be based on more than just speculative harm or conjecture.³³ Here, it is not clear what dangers native content presents to consumers justifying a priori regulation. One recent study shows that over a third of consumers do not care that native content originates with a brand and would click-through the same as they would editorial content.³⁴ If consumers want a free flow of native content, and the status of the speaker—i.e., publisher or brand—is inconsequential in the eyes of the consumer, there may be a question as to what harm broad regulation of native content would address.³⁵ At this early time in native content's evolution, these potential constitutional hurdles, as well as the twin specters of chilled speech and stifled innovation, caution regulatory restraint.

That is not to say that certain advertisers or publishers may push the legal line and in some occasions cross it. Our point is that those instances should be addressed on a case-by-case basis. Applying the FTC's deceptive and unfair practices regulations to new and evolving native content practices should be a fact specific inquiry, and as such should be considered on an incremental basis as opposed to categorical classification. The incremental play is not new to the FTC. In many instances when dealing with new technologies, the FTC has opted towards a measured approach that allowed industries to experiment and evolve while remaining vigilant as to potential excesses.³⁶

CONCLUSION

Critics have long assailed the commercial/noncommercial speech distinction and differing levels of First Amendment protection.³⁷ We are not making that argument here. Rather, as our discussion makes clear, the term native advertising is a catch-all phrase that casts too wide a net to capture many different types of commercial and non-commercial speech. Many of those native variations bear the traditional hallmarks of speech that courts have long considered to be "commercial" and thus freely regulated by the FTC under the lesser intermediate standard of judicial review. But other types of native resemble expressive content that traditionally has been afforded more fulsome First Amendment protection. Now that the FTC has turned its regulatory sights to the relatively nascent practice of online native ads, a more nuanced understanding of native advertising practices is necessary to fully determine the level of protection each variation is due under the First Amendment. In the end, not all native advertising is created equal; and native that is closer to solely editorial content could and probably should be entitled to greater First Amendment protection than native that is closer to simply promoting or advertising a product. This potential constitutional threshold question, along with the dangers of chilling still evolving technology, counsels caution if and when the agency decides to regulate the emerging digital marketing practice of native advertising.

Footnotes

[1] The MLRC has graciously allowed republication of this article. For more information on the MLRC check out www.mlrc.org.

[2] Disclaimer – the MLRC Journal is a legal journal. With that in mind, we give the caveat up front that our writing style here is going to be a little less loose and little more dense that our typical blog.

[3] See Bolger, 463 U.S. at 60.

[4] Tom's Best Friend, Funny Or Die, available at http://www.funnyordie.com/videos/8b2b588243/tom-brady-s-best-friend?playlist=338229.

[5] See 13 Perfectly Cast Disney Princesses, BuzzFeed, Mar. 26, 2014, available at http://www.buzzfeed.com/virginmobilelive/13-perfectly-cast-disney-princesses.

[6] See Bolger, 463 U.S. at 60; Bell, 414 F.3d at 480; Gorran, 464 F.Supp.2d at 326-28.

[7] See Bolger, 463 U.S. at 66-67.

[8] See Section I.C supra.

[9] See e.g., FTC's Dot Com Disclosures: Information about Online Advertising, supra note 55; FTC'sGuidance on Sponsored Search Engine Results, supra note 59.

[10] See Virginia Pharmacy, 425 U.S. at 761; Bolger, 463 U.S. at 66-68.

[11] See Virginia Pharmacy, 425 U.S. at 761.

[12] Id.

[13] See Bolger, 463 U.S. at 67 ("Finally, the fact that Youngs has an economic motivation for mailing the pamphlets would clearly be insufficient by itself to turn the materials into commercial speech.) (citing Bigelow, 421 U.S. 809, 818 (1975); Ginzburg v. United States, 383 U.S. 463, 473 (1966); Thornhill v. Alabama, 310 U.S. 88 (1940)); see also Pittsburgh Press, 413 U.S. at 384-85; New York Times Co. Sullivan, 376 U.S. 254 (1964); American School Publs., 119 A.D.2d at 18; see generally Kozinski & Banner, supra note 72.

[14] See Wasserman, supra note 7.

[15] American School Publs., 119 A.D.2d at 18.

[16] Id. at 18-19.

[17] Id. at 19-20.

[18] 214 F. 3d at 456.

[19] Id. at 462 citing Bolger, 463 U.S. at 67-68; Board of Trustees of the State University v. Fox, 492 U.S. 467, 474-75.

[20] Hoffman, 255 F.3d at 1185-86. See also Gorran, 464 F.Supp.2d at 326-328, in whichthe court found that the author's website was both noncommercial and commercial in nature as some pages simply provided information, while others clearly proposed online commercial transaction. Because the plaintiff's complaint related "solely to the non-commercial aspects of the website—speech that is afforded full First Amendment protection—the claim [was] dismissed."

[21] Hoffman, 255 F.3d at 1185-86 (internal citations omitted).

[22] Id.

[23] See Playboy Entm't Group, 529 U.S. at 813 ("If a statute regulates speech based on its content, it must be narrowly tailored to promote a compelling Government Interest."); Sable Communications, Inc., 492 U.S. at 126; Perry Educ. Ass'n v. Perry Educators' Ass'n, 460 U.S. 37 (1983).

[24] See, e.g., Mainstream Marketing Services, Inc. v. Federal Trade Commission, 358 F.3d 1228, 1236 (10th Cir. 2004) ("In reviewing commercial speech regulations, we apply the Central Hudson test.")

[25] This is not to suggest that FTC native content regulations could not be narrowly tailored to a compelling interest. Government consumer fraud regulation prohibiting false representations, for instance, may be by its very nature ostensibly narrowly tailored to a compelling government interest. Kozinski & Banner, supra note 72 at 651. And contrary to the popular myth, strict in theory does not necessary mean fatal in fact. Adam Winkler, Fatal in Theory and Strict in Fact: An Empirical Analysis of Strict Scrutiny in Federal Courts, 59 Vand. L. Rev. 793 (2006).

[26] FTC Workshopat 91-93.

[27] Id.

[28] See Lucia Moses, After Scientology Debacle, The Atlantic Tightens Native Ad Guidelines, AdWeek, January 30, 2013, available http://www.adweek.com/news/advertising-branding/after-scientology-debacle-atlantic-tightens-native-ad-guidelines-146890.

[29] See Wasserman, supra note 7.

[30] Riley, 487 U.S. at 800-01 ("In contrast to the prophylactic, imprecise, and unduly burdensome rule the State has adopted to reduce its alleged donor misperception, more benign and narrowly tailored options are available.... Broad prophylactic rules in the area of free expression are suspect. Precision of regulation must be the touchstone in an area so closely touching our most precious freedoms.") (internal citations omitted).

[31] Id. at 793 (finding broad and ambiguous restrictions on professional fundraising fees "must necessarily chill speech in direct contravention of the First Amendment's dictates.")

[32] 44 Liquormart, Inc., 517 U.S. at 497-98.

[33] Id.

[34] FTC Workshop at 144.

[35] The question of the precise harm at issue is not only important for First Amendment purposes, but also with respect to the FTC's power to bring regulatory actions under its "unfairness authority." Rather than regulate native content as deceptive, the FTC could potentially regulate it under the unfairness prong of Section 5 of the FTC Act. However, for the FTC to regulate native content as an "unfair act or practice," it must demonstrate that the practice "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition." 15 U.S.C. § 45(n). Where consumers desire native content, and where native content provides benefits such as entertainment or information, this may be a difficult bar for the FTC to meet.

[36] For example, the FTC considered over 450 comments as well as "technological advances and industry developments" during an approximately two years period between the staff report preliminary recommendations on protecting consumer privacy and issuing its final report (Protecting Consumer Privacy in an Era of Rapid Change). See FTC Issues Final Commission Report on Protecting Consumer Privacy, FTC, Mar. 26, 2013, available at http://www.ftc.gov/news-events/press-releases/2012/03/ftc-issues-final-commission-report-protecting-consumer-privacy.

[37] See Kozinski & Banner, supra note 72; Bolger, 463 U.S. at 80-81) (Stevens, J. concurring) ("Even if it may not intend to do so, the Court's opinion creates the impression that 'commercial speech' is a fairly definite category of communication that is protected by a fairly definite set of rules that differ from those protecting other categories of speech. That impression may not be wholly warranted.")

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